Interest Rates (Hansard, 7 June 1988)

§ The Parliamentary Under-Secretary of State, Department of Transport (Lord Brabazon of Tara)
My Lords, bank base rates are 8½ per cent. While the Government never speculate on the future course of interest rates, they will continue to be set at the levels necessary to bear down on inflation.

§ Lord Jay
My Lords, is the Minister aware that I was most encouraged to find that the Bank of England reduced interest rates on the day after I put down this Question? I was rather less encouraged when, a week or so later, it put them all up again. Is the noble Lord aware that if both interest rates and exchange rates stay for too long at recent levels there is a real risk of unemployment beginning to rise again before the end of the year?

§ Lord Brabazon of Tara
My Lords, I hate to disappoint the noble Lord, but I suspect that there was no connection between him putting down his Question and the fall in interest rates which took place at that time. As I said in my original Answer, we are committed to maintaining a firm monetary policy and a downward pull on inflation. That, as far as unemployment is concerned, is the most important aspect.

§ Lord Hatch of Lusby
My Lords, will the noble Lord tell the House whether the Government's policy is that of the Prime Minister—a policy of no intervention so far as concerns the value of sterling—or is it that of the Chancellor of the Exchequer who wants to regulate the value of sterling, or that of the Foreign Secretary who wants to join the European Monetary System?

§ Lord Brabazon of Tara
My Lords, I can do no better than to quote from my right honourable friend the Prime Minister on 17th May. She said: My right hon. Friend [the Chancellor] and I entirely agree that we must maintain a firm monetary policy and a downward pull on inflation. I totally agree with my right hon. Friend's Budget speech, every bit of it … We use the available levers, both interest rates and intervention, as seems right in the circumstances … it would be a great mistake for any speculator to think at any time that sterling was a one-way bet".—[Official Report, Commons, 17/5/1988; col. 794.]

Lord Bruce of Donington
My Lords, so far as—

Noble Lords
Jenkins!

§ Lord Jenkins of Hillhead
My Lords, have the Government recently considered joining the EMS as 1236 a recipe in most circumstances for having lower interest rates? Do the Government seriously consider that we can achieve 1992 and have Britain playing a significant role in the single market while standing out both from the free movement of individuals across frontiers—as is now the Government's position as emerged this week—and standing out from the EMS and the possible creation of a European Central Bank?

§ Lord Brabazon of Tara
My Lords, as regards the exchange rate mechanism of the EMS, I can do no better than to repeat an answer that I have given in your Lordships' House on many occasions; namely, we will join when the Government consider that the time is right.

Noble Lords
Hear, hear!

§ Lord Brabazon of Tara
My Lords, countries within the ERM are not protected from realignments and sometimes suffer some quite painful readjustments. As regards the proposals for a Central Bank of Europe, most of those who have put forward these proposals have recognised that they are very much in the long term. The immediate priority must be given to achieve liberalisation of capital movements throughout the Community.

§ Lord Hailsham of Saint Marylebone
Now the great moment has arrived!

Lord Bruce of Donington
My Lords, in view of the fact that the money crossing the exchanges every day is roughly 20 times the amount required to finance ordinary trading transactions and that therefore the in-flow of money, mainly hot money, has a profound influence on rates, will the noble Lord take early steps to reduce the interest rate by at least 2 per cent? Is he aware of the contents of page 11 of the DTI press notice which reveals that of our imports into the United Kingdom only 6 per cent. are in respect of raw materials and 15 times as much is in respect of manufactured goods into the United Kingdom, which are being subsidised to the detriment of the products of British industry? Will the noble Lord please take steps to advise his colleagues in the Treasury to adopt in future a more logical and reasonable interest policy?

§ Lord Brabazon of Tara
My Lords, if, as I suspect, the noble Lord is arguing for a sharply lower sterling exchange rate, I am certainly not prepared to advise or even to mention it to my right honourable friends in the Treasury. It would surely lead to a vast increase in inflation, which is the most damaging thing that could happen.

Lord Bruce of Donington
My Lords, if the noble Lord will not accord me the normal courtesy of referring the matter to his Ministry, is he aware that I shall take other steps to ensure that his right honourable friend is fully informed and also the public at large?

§ Lord Brabazon of Tara
My Lords, I am obviously fearful of what the noble Lord might do and therefore I shall draw his remarks to the attention of my right honourable friend.

§ Lord Hailsham of Saint Marylebone
My Lords, is not the real moral of this, both here and in another place, that while these are serious matters of debate they are not suitable for supplementary questions and answers?

§ Lord Brabazon of Tara
My Lords, my noble and learned friend makes a very good point. I do not flatter myself that the markets would take a great deal of notice of what I say in this House this afternoon but it certainly does no good to speculate about such matters.

§ Lord Mayhew
My Lords, as regards joining the EMS, does the noble Lord agree with the right honourable Sir Geoffrey Howe when he stated that the Government cannot carry on indefinitely giving the reply which the noble Lord has just given to the House?

§ Lord Brabazon of Tara
My Lords, it is the only reply that I have.

§ Lord Peston
My Lords, I hope that the noble Lord will forgive me for asking a supplementary question, but can he explain to the House how raising a price—namely, the rate of interest—lowers the rate of inflation? Surely raising a price is inflationary.

§ Lord Brabazon of Tara
My Lords, I am not sure that I understand the noble Lord. I was replying to the noble Lord, Lord Bruce, who suggested that we should lower interest rates. That would result in a fall in the exchange rate which would be inflationary.